Coalition-Proof Allocations in Adverse-Selection Economies

Jeffrey Lacker and John Weinberg

The Geneva Risk and Insurance Review, 1999, vol. 24, issue 1, 5-17

Abstract: We reexamine the canonical adverse selection insurance economy first studied by Rothschild and Stiglitz [1976]. We define blocking in a way that takes private information into account and define a coalition-proof correspondence as a mapping from coalitions to allocations with the property that allocations are in the correspondence, if and only if, they are not blocked by any other allocations in the correspondence for any subcoalition. We prove that the Miyazaki allocation—the Pareto-optimal allocation (possibly cross-subsidized) most preferred by low-risk agents—is coalition-proof. The Geneva Papers on Risk and Insurance Theory (1999) 24, 5–17. doi:10.1023/A:1008762430952

Date: 1999
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